In response to Russia’s invasion of Ukraine, the EU, US, UK and other allies have imposed sanctions against Russia. Subsequently, companies worldwide have been forced or have chosen to cease business with a Russia-nexus.
The latest issue of Export Compliance Manager delves into this topic with the article “Putin’s war: how to comply with rapidly escalating sanctions”, to which Sebastiaan Bennink, Partner at BenninkAmar, and Sarah Reilly, Lawyer at BenninkAmar, contributed. This report provides companies operating internationally tools to remain compliant with the rapidly changing international sanctions against Russia.
The new restrictions include the designation of hundreds of oligarchs, other Russian individuals and companies. Companies doing business often find it difficult to determine what they can and cannot do when faced with the opaque web of corporate structures. This contribution discusses, amongst others, i) key considerations that companies should consider when facing sanctions against Russia; ii) methods by which companies can evaluate their supply chains, counterparties and contracts to identify possible links with sanctioned parties; and, iii) the circumstances under which existing contracts can be terminated.
- Conduct supply chain due diligence: it is essential to conduct thorough due diligence, in particular when selling to Russian customers. Companies should identify multilateral restrictions in various jurisdictions to guard against every any prohibited contact with Russia.
- Screen UBOs: there is no shortcut to identifying all customers, suppliers and banks involved in transactions in Russia, Belarus and Ukraine. This means that all parties involved, including their ultimate beneficial owners, must be screened against the latest sanctions lists. Attention should be paid to the so-called “US 50% rule” (the EU has a similar rule). Under this rule, suppliers, customers and banks outside Russia and Belarus may be subject to sanctions on the grounds that they are owned by sanctioned parties by a certain percentage.
- Recognize red flags: companies are advised to look out for “red flags” of actual or potential violations of sanctions and train their employees in this regard. Close attention should be paid to customer/supplier requests of, e.g., third party payment mechanisms.
- Include contractual arrangements: it is recommended to include contractual clauses on pre-payment and termination to existing and new contracts to obtain payment in case of new financial restrictive measures. Additionally, parties are recommended to contractually exclude the applicability of Russian law, as it does not recognize the application of international sanctions.
- Review contracts: lastly, companies are advised to consider expanding clauses like “force majeure”, “impossibility” and ‘’frustration of purpose or impracticability” in their contracts. In case a contracting party is subject to an asset freeze, financial institutions must immediately freeze all assets and economic resources of that sanctioned party. Before the contracts with that party can be terminated however, it should be assessed whether it is legally permitted to pull out of business completely by terminating the contract with that entity or person.
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